By Virginia Rylatt. First published in Jane’s Defence Weekly on 26 January 2011.
Could any “favour” to a foreign public official anywhere in the world given to encourage the placing of a large order for military equipment escape the clutches of the Bribery Act 2010? Probably not.
However, the Serious Fraud Office (SFO) is prepared to spend UK taxes to redress this issue. Richard Alderman, director of the SFO, was quoted in The Times as saying: “I am determined that British companies that pursue good corporate governance and ethical business practice should not be placed at a competitive disadvantage by foreign companies, wherever they are based using bribery and corruption to win contracts. If I am made aware of such instance, the SFO is prepared to step in and take appropriate action.”
Bribery Act 2010 applies to persons who are offering bribes even though they are outside the UK, providing they have a close connection with the country. ‘Close connection’ has a wide definition in this Act and would include a person who is not a British Citizen or nationalised as a British citizen, but someone who is simply ordinarily resident in the UK.
There are two sections aimed at corporations: Section 6 (bribery of foreign public officials) and Section 7 (failure of commercial organisations to prevent bribery), and both sections create special pitfalls for the unwary.
The starting point is to understand the way this Act extends the ordinary notion of bribery. Bribery is not just providing the inducement to succeed in getting the recipient to act or do what the person bribing them wants; it also includes an unsuccessful bribe. Section 1 (Case 1) provides that it is an offence, among other things, if a person “offers, promises or gives a financial or other advantage to another person” and “intends the advantage” to “induce a person to perform improperly a relevant function or activity” – a definition which does not require the other person to have succumbed to the offered bribe.
There are also offences for those accepting bribes relating to the definition of “performing improperly” a “relevant function”. ‘Relevant function’ is defined as: any function of a public nature; any activity connected with a business; any activity performed in the course of a person's employment; or “any activity performed by or on behalf of a body of persons (whether corporate or unincorporate)” where the person performing that function is expected to perform it, either in good faith or impartially or is in a position of trust by virtue of performing it. ‘Performing Improperly’ is defined as an activity that is performed “in breach of a relevant expectation”, but sometimes failure to perform can also qualify, as that failure “is itself a breach of a relevant expectation.”
This leads to the statute-defining ‘relevant expectation’ in Section 4(2). This is a tricky definition and is predictably designed for many future arguments in court. Depending on the type of function or activity identified within the Act as Condition A, B and C the ‘relevant expectation’ is to perform the particular function ‘in good faith’ (Condition A); ‘impartially’ (Condition B); or for a person performing a function or activity who is in a position of trust by virtue of performing it (Condition C) the ‘relevant expectation’ is any expectation that arises from that position of trust.
What will concern large corporations most are the criminal offences set out in Section 6 Section 7. A person is guilty of bribing a foreign public official if they directly or indirectly offer, promise or give any financial or other advantage to the official and intend to influence the official in his capacity as a foreign public official and intend to obtain or retain business or an advantage in the conduct of business.
This crime is limited to where the foreign public official is not permitted or required by the written law of his state to be so influenced. So it will apply to foreign officials where it is the custom (but not the written law) to be given a "financial or other advantage" to influence them in their selection for the award of a lucrative contract to a particular corporation.
For individuals, these offences carry the penalty of up to 12 months prison sentence if convicted summarily and up to ten years if convicted on indictment.
In either case a fine can be imposed as well as - or as an alternative to - a prison sentence.
BAE Systems hit the headlines when, pursuant to a much reported agreement with the SFO on 20 December 2010, the company pleaded to only one charge of failure to keep proper accounts in relation to the sale of a radar system in Tanzania, with the SFO dropping its six-year investigation into the company’s dealing in Africa and Eastern Europe in return. Had the SFO been able to prosecute BAE Systems under Section 7 (when it comes into force), the result could have been very different.
Under Section 7 a relevant commercial organisation is guilty of an offence if any person associated with it (which under Section 8 of the Act could be an employee, agent or subsidiary) bribed another person to obtain or retain business; or to obtain or retain an advantage in the conduct of business for that organisation.
‘Relevant commercial organisation’ includes any partnership or corporate body that carries on a business or part of a business in any part of the UK. This offence has one statutory defence: that the corporation had adequate procedures designed to prevent persons associating with the commercial organisation from bribing. The need for clearly defined ‘adequate procedures’ cannot be underestimated. Under Section 9 of the Act the Secretary of State must publish guidance about procedures that relevant commercial procedures can put in place to prevent persons associated with them from bribing. This guidance has not yet been published but it is a good bet that it will not condone the payment of large lump sums due under contracts to marketing consultants on the signing of agreement for the supply of military equipment.
Virginia Rylatt, 26 January 2011